Latin Manharlal Group, A Successful & Leading Provider of Financial Services for over two decades. It has become synonymous name with Reliability & Trust for their customers pan India with more than 200 channel partners and catering to more than 35000 clientele. Latin Manharlal group has evolved itself from mere Equity Broking business to a full fledged Financial Service Provider through its various group companies.

Tuesday, 22 September 2015

Is the end of Rupee’s woes in sight?

Against
the backdrop of turmoil in China and jitters over a looming US interest rate
hike, the Indian rupee has been gripped by Bears in recent times as an
uncertain global economic outlook triggered a capital flight from emerging
markets. The Rupee has shed 4% of its value this year, while tanking over 2%
since August 11 when China’s decision to devalue the yuan by the most in two
decades sent shock waves to financial markets worldwide. However, the US Federal
Reserve’s surprise decision to refrain from a hike in borrowing costs brought
some relief to the domestic currency, which registered its biggest gain vs the
greenback in two years, surging to a one-month high on Friday.

However, the rupee’s comeback
may be short-lived with high uncertainty still prevailing on the global front,
meaning that the currency will be prone to downward pressure that will be
cushioned by expectation of further policy easing by the RBI and hopes of
progress on key reforms. We explain below why.

Firstly, Even as it
maintained status quo on interest rates last week, Fed meeting materials show
that 13 out of the 17 policymakers warrant a rate hike this year, meaning that
markets must brace for US policy tightening in the near-term. The Fed which
has kept its key rate near Zero since 2008, next meets on October 27-28 and
then on December 15-16. Higher interest rates in the US will increase the lure
for US dollar denominated assets that may lead to further capital outflows from
risky assets, causing the rupee to depreciate, taking severe toll on Indian
companies having large overseas debt. Foreign investors, who pulled out a record Rs
17,428 crore from Indian stocks in August 2015, have emerged as net sellers of
Indian equities & bonds to the tune of Rs 4,600 crore in September, thus far.

Secondly, the ‘China’
factor will continue to dominate sentiment across global markets with
uncertainty surrounding the full extent of the country’s slowdown. Recent
factory, investment and export data have signaled that China’s woes seem to be
deepening, defying efforts by policymakers to fix the country’s slowdown. Being the world’s second biggest economy
and the largest commodity player in the world, a rout in China means diminished
fortunes for the global economy, hence inviting risk aversion among foreign
investors.

Thirdly, it is foolish to
pin the entire blame of an FII exodus on global factors as slow progress on key
reforms such as the GST which has been derailed by political headwinds, and a
domestic economic slowdown have also contributed to the rupee’s slide in recent
weeks. India’s economic growth slowed to 7% in the June quarter from 7.5%
in Q4 FY 2014-15 while exports have been in contraction terrain for nine
straight months.

However, its’ not entirely
looking murky for the rupee as the Fed’s move to hold off an interest rate hike
has almost guaranteed an RBI rate cut on September 29 which should support
sentiment. The possibility of at least another rate cut beyond September, in
the ongoing fiscal, looks high as a softening global commodity cycle amidst
weakness in China keeps oil prices lower, narrowing the fiscal and current
account deficits, taming inflation. At the same time, the RBI will keep a close
watch on the effect of a deficient monsoon on food prices which may limit
policy easing room.

On the growth front, much rests
on the Modi government’s ability to fast track key reforms with hopes riding
high on the passage of the GST bill in the Winter Session of the Parliament.
Recent measures to boost public investment in roads and railways may bolster
economic growth while a quick fix on the problems plaguing the banking sector
which is sitting on a pile of stressed assets, is also the need of the hour, a
move which may revive credit growth and accelerate the corporate investment cycle.

The Bottom-line- the Rupee may continue to depreciate against its US
counterpart in the coming months amidst uncertainty over China and a US rate
hike, with hopes of a rebound in the
domestic economy likely to offer some
relief.

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Latin Manharlal Group, A Successful & Leading Provider of Financial Services for over two decades. It has become synonymous name with Reliability & Trust for their customers pan India with more than 200 channel partners and catering to more than 35000 clientele.
Latin Manharlal group has evolved itself from mere Equity Broking business to a full fledged Financial Service Provider through its various group companies.